The Shanghai Composite Index, the world’s worst performer in past 20 dealing days, may temporarily fall more according to the report of sustainable economic recovery.

Former Morgan Stanley Asian economist Andy Xie, well known as a bearist in China, said the index “should be 2000 or less” which is another 25 percent lower from this position.

Authorities data supports the parlance that banks financing greatly boast both stock market and real estate market in the past few months. It is about time to rein in lending to avert bigger asset bubbles and besides, policy makers noticed the overcapacity phenomena in some industries such as steel and cement.

Even in spite of the tightening credit market, China equities remain alluring spot among global stocks thanks to the nation’s growth potential comparing to the bleak western. In the view of accounting, some Chinese stocks are trading at the steepest discount in the world compared with analysts’ price targets after the month-long slump. Some analysts recently adjusted their forecasting for China’s economy to 9.4% from 8.3 per cent, accordingly, Gross domestic product may increase 11.9 percent in 2010, higher than an earlier estimate of 10.9 percent.

Short term trading will be very volatile but we believe a strong economic recovery is underway in China and remain quite positive on the long-term growth potential. The A share market is undergoing a correction rather than a bursting of the bubble, I forecast the market will perform very well in this month before National Holiday, much better than those conservative expectation.

What I am worrying about is not the economy itself, I am waiting for the moment of real bubble bigger enough.

China stock

China investors experienced pains again and suddenly they were pulled back into the reality after losing 10-20% money. I see this decline in the past few days as a normal correction after five months of steady gains, I believe the stock market will continue to rally in the second half as most government officers and analysts start to believe ” the global and Chinese economies recover and as corporate profits continue to improve”. Based on their belief and massive crazy but blind investors, I guess the market may soar again even though I m quite not sure if the coming future is that bright.

China Financial Market

As the world struggles with the financial crisis and its repercussions on the global economy, questions inevitably arise as to what and who will drive the financial markets in future years. China is likely to be one of the key players, given its dynamic development.

China’s financial markets have enjoyed a period of strong growth since the early 1990s, even though they are still relatively small compared to those of industrial countries and some other emerging markets.

Regulatory bodies have followed a careful and gradual reform path and will most probably continue with this approach. Given the current turmoil in global financial markets and the experience of successful gradual reforms, this approach is likely to provide a good basis for sustainable development in the future.

It would be unrealistic to expect China to emerge unscathed from the global recession. The weaknesses of less financially sound banks will be exposed during the downturn. A strengthening of provisioning and the capital base will be needed in light of a potential rise in credit losses.